So, a rudimentary jailbreak for Windows RT made its way onto the web these past few days. Open source applications were ported right away, and it was confirmed that Windows RT is the full Windows - it's exactly the same as regular Windows, except that it runs on ARM. Microsoft responded to the jailbreak as well.

It hardly does matter for quick and dirty Jit translator.
Translation overhead is worse than small inefficiencies in code.

But the trouble is that x86 flags & registers are very unique to that architecture

That is not exposed to C or any language above asm.
Check some executables. Usually only basic flags are used.

Also ARM has conditional instructions, the optimal code path could be very dissimilar to x86's which needs alot more jumps.

Do not confuse modern OoO ARMs with old in-order ones.
Conditional execution is actually bad for OoO engine, as it is adding unwanted dependency between instructions. I heard some rumors that cortex-A9 replaces CE with branches internally.

Maybe a direct translation is good enough for some applications, but it would be like compiling a binary with no optimization for the target processor.

You don't get it. Nobody cares about such a small inefficiencies.
And It has already been done. There is an app that does static binary translation of Windows games for Android. (Winulator)